Businesses to face greater scrutiny from HMRC on payments to contractors and consultants

In a recent non-tax case the Supreme Court confirmed that agreements are not to be taken at face value when determining if an individual is, or is not, an employee.

The documentation considered by the Court had all the terminology that is was a contract for services, not employment, but the contract was disregarded as the purported self-employed contractors “…were employees in all but name…”.

The Court set aside the written contract not because it was inaccurate, or a sham, or defective in any way. The Court said that in employment contracts the employer has the upper hand – the individual in effect has to agree to the terms of the contract as a given. The Court disregarded the contract as it “…bore no practical relation to the reality of the relationship.”

Encouraged by this decision, when HMRC are deciding whether individuals businesses engagements are within PAYE/NIC or IR35 with the requirement to make deductions, or are self employed with payment made gross, they will not merely consider the documentation – they will look behind this and take account of the real facts. 

When a relationship is that of employer/employee this case shows that it cannot be changed by merely having the “right” paperwork.

If you have concerns in this area, please contact any of Mazars experts.